This article compares the types of knowledge democracy and the market require to rationally allocate resources. I argue that high levels of public ignorance and voters’ inability to compare the effects of different parties’ policies make it difficult for parties and elections to rationally allocate resources. Markets mitigate these problems because the simultaneous existence of multiple firms’ products facilitates comparisons that mimic the conditions of scientific experimentation. The economy of knowledge involved in such comparisons indicates there are epistemic advantages to using firms and markets, instead of political parties and elections, to allocate scarce resources. However, in contrast to arguments that markets merely provide better information than political decisions, I argue markets’ epistemic advantages are derived from the way they facilitate comparisons that minimize decision makers’ need for knowledge or understanding.
I exploit the sudden and dramatic jolt that Osama Bin Laden's capture gave to Barack Obama's 2012 re-election prospects to gauge the relationship between presidential prospects and stock market valuation changes. Using campaign contributions as an indicator of political support, I find that following Bin Laden's death, firms that had previously supported Democrats registered significant positive returns, whereas firms that had supported Republicans registered significant negative returns. Across the S&P 500, the president's transformed re-election prospects shifted market capital worth $101 billion over one day and $245 billion over one week. My findings indicate that the relationship between the presidency and firm valuations is associated with patterns of past political support, substantively and significantly important, and more pronounced for the presidency than for Congress.
We show how preferred committee assignments act as an electoral subsidy for members of Congress—empowering representatives’ legislative careers. When holding preferred assignments, legislators are free to focus on legislative activity in Washington, DC. But when the subsidy is removed, legislators are forced to direct attention to the district. To test our theory of legislative subsidy, we exploit committee exile—the involuntary removal of committee members after a party loses a sizable number of seats. Legislators are selected for exile using members’ rank on the committee, causing exiled and remaining legislators to appear strikingly similar. Using exile, we show that it has only limited electoral consequences, but this is partly due to compensatory efforts. Exiled legislators shift attention away from Washington and towards the district: they raise and spend more money for reelection, author less legislation, are absent for more days of voting, and vote with their party less often.